This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Cramer: The Fundamentals and How They Really Impact Stocks

As part of our judgment process, we have to compare the numbers in the earnings and sales reports to the expectations set by Wall Street analysts. Perhaps more important, though, we care about the company's outlook for the future, and how that jibes with the expectations. This out­look is typically given cursorily in the company's quarterly earnings re­lease, but is much more in-depth on the conference call, at the end of management's discussion of the earnings and right before the question­and-answer session. That outlook is the single most important consider­ation when you are trying to decide whether to buy or sell a stock at the time it reports. That's why I always laugh-with scorn, mind you-when I see people trading stocks after hours without listening to the conference call. If the largest determinant of the future price move comes usually about ten minutes into the call, what the heck are these bozos trading off of? It's shameless and stupid, and I sure hope I don't catch you doing it.

What are we listening for in that outlook? We want to hear forecasts, particularly for the rate of change of sales and earnings growth. But the portion of the forecasting I care the most about is the direction given on future gross margins, because that can be a true indicator of what the business can earn in the future. The gross margin guidance is what will be used to try to figure out next quarter's earnings estimates. That will set the benchmark that has to be beaten next time. When you hear "Such and such company beat the estimates," I say, "That's nice." It can help a stock and won't hurt it, for certain. But when you hear "Such and such a com­pany beat estimates and raised guidance," then I know the stock is going higher. That's because a raising of the guidance by the company in that one little moment on the conference call before the Q&A means that analysts have to change their views to be more positive about the stock, which means more upgrades, more price target increases and more promo­tion. Those are the fundaments of immediate increases in stock prices. That's the only earnings "surprise" you should really care about, not the "better than expectations" stuff that you are normally told should matter. "Beat estimates" can matter. "Beat and raise," shorthand for "beat the estimates and raised guidance for future quarters," is what matters most. That's the crucial phrase you need to hear to bet with a stock instead of against it. That's when you know you have a winner, even if the unseen forces are playing havoc with the stock that day. If you keep a file of the "beat and raise" stocks and you buy them on down days, you are going to be investing carefully and making a boatload of money despite the noise that seems to weigh on stocks on a daily basis.

Text copyright © 2013 by J.J. Cramer & Co. From JIM CRAMER'S GET RICH CAREFULLY, reprinted with permission from Blue Rider Press, a member of Penguin Group (USA) LLC

3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $129.93 -0.37%
FB $79.36 -1.30%
GOOG $562.55 1.30%
TSLA $204.14 -1.50%
YHOO $44.21 -0.54%

Markets

DOW 18,193.60 -20.82 -0.11%
S&P 500 2,111.53 +0.79 0.04%
NASDAQ 4,982.6690 -5.2210 -0.10%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs